What it means
A board of directors is a committee, and like any committee it needs someone to run it. The chairman calls the meetings, agrees the agenda with the company secretary, ensures directors receive information in time to read it, and manages the discussion so that quieter voices are heard and decisions are actually taken.
The role carries no extra vote in most companies, apart from a casting vote in a tie where the articles allow one. The distinction that matters commercially is between the chairman and the chief executive.
The chief executive runs the business and is accountable to the board, while the chairman runs the board and holds the chief executive to account on the shareholders' behalf. Combining the two roles concentrates power in one person, which most corporate governance codes discourage for listed companies.
Day to day the work is less procedural than it sounds. A good chairman spends time between meetings talking to individual directors, the auditors and major shareholders, so that disagreements surface in private rather than erupting in the boardroom.
Managing succession, both for the chief executive and for the board itself, is one of the role's most consequential duties. Chairmanship comes in several forms.
An executive chairman also holds an operational role, a non-executive chairman sits outside management, and an independent chairman has no material relationship with the company beyond the board seat. Investors generally prefer independence, because the chairman is the person best placed to challenge a dominant chief executive.
In smaller and owner-managed companies the title is often held by the founder, and the discipline of the role can get lost. Even then, running board meetings properly, minuting decisions and separating governance discussion from operational firefighting has real value when the company later seeks investment or a sale.
Language is shifting as well, and many companies now use chair or chairperson in their articles and annual reports. The duties, the legal position and the casting vote are unchanged, so the two titles should be read as describing exactly the same office.
In practice
Real-world examples.
Example
A family-owned engineering group appoints an independent chairman after two brothers on the board deadlock over an acquisition. The chairman restructures the agenda so strategy is discussed separately from operations, and the decision is finally taken with a documented rationale after three meetings.
Example
A venture-backed software company separates the roles when the founder steps back from being both chairman and chief executive. The incoming independent chairman leads the search for a new chief executive while the founder concentrates on product, an arrangement the investors made a condition of their funding round.
Example
A charity's chairman notices that trustees are approving budgets they have received only the night before. She institutes a rule that no paper is tabled with less than five working days' notice, and the quality of challenge in meetings improves within two cycles.
Case study
Seen in the real world.
Marlow Fabrics is an illustrative and entirely fictional textile business with $40,000,000 of revenue. Its founder had held both the chairman and chief executive roles for twenty-two years, and board meetings had become a monthly briefing in which the founder presented and the other directors listened.
When a private equity investor took a 30% stake, it made the appointment of an independent chairman a condition of investment. The new chairman changed three things: papers were circulated a week ahead, every meeting opened with a session for non-executive directors without management present, and each decision was minuted with the alternatives that had been considered.
Within a year the board had rejected one acquisition the founder favoured and approved a factory investment he had been hesitant about. Neither outcome proved the founder wrong, but the illustrative point is that decisions were now being tested rather than announced, which is what the chairman's role exists to produce.
Watch out
Common mistakes.
- Assuming the chairman runs the company, when the chairman runs the board and the chief executive runs the business.
- Treating the role as ceremonial, when the chairman's control of the agenda and information flow shapes what the board is able to decide.
- Believing the chairman has a legally superior vote, when in most companies the only additional power is a casting vote in the event of a tie.
Questions
People also ask.
What is the difference between a chairman and a president?
Chairman is a board role in most jurisdictions, whereas president is typically a senior executive title in a United States corporate structure.
Should the chairman and chief executive be the same person?
Governance codes for listed companies generally say no, because separating the roles preserves the board's ability to challenge management.
Is a chairman paid?
Usually yes, through a fee rather than a salary in the non-executive case, with the amount reflecting time commitment and the size of the company.
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